3 common investing mistakes I wish I’d known to avoid

James Reynolds reveals three of the common mistakes he wishes he’d known about when he first started investing.

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When I first started buying shares, I didn’t have a clue what I was doing. I made so many of the investing mistakes common to beginners it’s amazing I didn’t lose all my money. I have since learned a great deal, and managed to recover my losses, but I wonder much further ahead I could have been.

Here are three common investing mistakes I wish I’d known to avoid when I first started investing.

I tried to be a day trader

I thought day trading would be easy. How difficult could it be to buy the bottom and sell the top? All I needed to do was ‘keep an eye’ on the market. Boy, was I wrong. No one can predict which way a stock will go and trying to anticipate it only cost me money and sleep. I learned the hard way that the only way to make money was to invest for the long term.

I didn’t do research and I had no confidence

Wanting to make up for lost time, I threw my capital into whatever was in the news, thinking that I could ride the wave up.

What I should have done was to look at a company’s:

  • Business model
  • Revenue
  • Profits over time
  • Debt
  • The share’s price-to-earnings (P/E) ratio

That way I can assess if a company is a good investment before putting my money in. 

The flip side of this is having confidence in my choices. I bought Tesla near its peak in 2020, but then watched, horrified, as the value of the shares (and my savings) dropped. So, I sold my shares and took the loss. If I’d had the confidence to hold on to them, I’d have made a very decent profit by now.

These lessons feed into one another. If I had researched my choices properly, I would have had the confidence to hold onto them when the share price fell. I might even have been able to buy more.

Now I know to learn the fundamentals of what I’m investing in and to have the confidence to hold onto my shares if the price comes down.

I lacked patience

Patience is the greatest virtue in investing. A lack of it is what caused me to make so many of the other mistakes I made.

Warren Buffett once wrote that the stock market is a method of transferring money from the impatient to the patient. By this, he meant that a really good investor knows what they want to buy, but waits until the right time to do so. This can be when the stock is undervalued, or during a market crash like in 2020.

After that, the key is to hold onto the shares and stay confident.

Valuing a stock can be difficult, so here’s a great guide on how to do it.

Conclusion

Investing is difficult, especially for beginners. What I really needed all those months ago was someone to teach me the basics so that I could invest confidently. But now I’ve learned those hard lessons, I’ve bounced back and I’m prepared for the future.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Reynolds has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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